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A Level Economics: Macroeconomics > 9.1 The Objectives Of Goverment Economic Policy > Flashcards

9.1 The Objectives Of Goverment Economic Policy Flashcards

1
Q

What is a policy objective?

A

Target or goal the gov wants to achieve

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2
Q

What are 4 of the UK’s policy objectives?

A

-achieve economic growth, improve living standards and levels of economic welfare

-create and maintain full or low unemployment

-control of limit inflation (to create price stability)

-attain satisfactory balance of payments (the avoidance of external deficit which may create an exchange rate crisis)

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3
Q

Diagram for short-run and long-run economic growth

A

Xxxxx

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4
Q

What is short-run economic growth?

A

Growth of real output resulting from using idle resources including labour, thereby taking up slack in the economy

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5
Q

What is long-run economic growth?

A

Increase in the economy’s potential level of real output and and outward movement of the economy’s PPF

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6
Q

What is short run economic growth often referred to as?

A

Economic recovery

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7
Q

What is long run economic growth shown by?

A

Movement from PPF1 to PPF2

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8
Q

What is short-run economic growth shown by?

A

Movements of point towards the frontier of a PPF

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9
Q

What is GDP?

A

Sum of all the goods and services produced in an economy in a year

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10
Q

What is nominal GDP?

A

GDP measured at the current market prices without removing the effects of inflation

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11
Q

What is real gdp?

A

Me side of all the goods and services produced in an economy adjusted to inflation or price changes

It transforms changes in nominal GDP(which is measured in money terms)and reflects the total output of the whole economy

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12
Q

What is a recession?

A

6 months or more of negative economic growth declining real national output

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13
Q

What is the eurozone?

A

Group or EU countries who replaced their national currency with the euro

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14
Q

Diagram for annual UK economic growth compared to the eurozone?

A

Xxxx

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15
Q

How many decisions of full employment is there?

A

2

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16
Q

What is William beverages definition of full employment?

A

When unemployment falls to 3% of the labour force

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17
Q

What is full employment according to the free market definition?

A

Occurs at the market clearing real wage rate where the number of workers wanting to work equals the number of workers employers are willing to hire

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18
Q

Diagram for full employment in an economy

A

Xxxxxx

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19
Q

What is the second definition of full employment from free market economists?

A

When Economy’s aggregate labour market at the market clearing wage real wage rate

Where number of workers willing to work =number of workers employers wish to hire

(Full employment occurs when there is no unemployment)

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20
Q

Why will there always be some unemployment in the county?

A

Because the economy is constantly changing

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21
Q

What are the two methods to measure unemployment in the UK?

A

Claimant count
Labour force survey

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22
Q

What is the claimant count method?

A

According to those who claim unemployment

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23
Q

What is the labour force survey method?

A

Quarterly sample survey of households in the UK(purpose to provide info on UK labour market)

-survey seeks information on respondents personal circumstances and their labour market status during a period of 1-4 weeks

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24
Q

Why did the UK gov drop the claimant count for the labour force survey?

A

It is an incredibly poor proxy for overall unemployment levels

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25
Q

What method claims higher unemployment?

A

Claimant count measure

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26
Q

What is inflation?

A

Persistent or continuing rise in the average price level

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27
Q

What is deflation?

A

Continuing tendency for the average price to fall

28
Q

What is disinflation?

A

When the rate of inflation is falling but still positive

29
Q

What does absolute price stability require?

A

Inflation rate of 0

30
Q

What does controlling inflation mean in the UK?

A

Achieving a low inflation rate

(Target 2%)

31
Q

What is negative inflation?

A

Deflation

32
Q

What is a price index?

A

An index number showing the extent to which a price or basket of prices has changed over a month quarter or year in comparison with the prices in a bad year

33
Q

What is the consumer price index?

A

Official measure used to calculate the rate of consumer price inflation in the UK(calculates the average price increase of a basket of 700 different consumer goods and services

34
Q

What is the retail price index?

A

Measure formerly used to calculate the rate of consumer price inflation in the UK

35
Q

What is indexation?

A

The automatic adjustments of items such as pensions and welfare benefits to changes in the price level, through the use of a price index

36
Q

What is the consumer index used for ?

A

Measure the rate of consumer price inflation

37
Q

What used to be the dominant price index and what has taken its place since 2011

A

Used to be retail price index
Now is consumer price index

38
Q

What had the CPI also been used for.

A

The indexation of welfare benefits

39
Q

What is the ONS?

A

The office of national statistics

40
Q

Why did the ONS say the RPI is a bad measure for inflation?

A

At times overestimating and underestimating changes in prices

41
Q

How is core inflation calculated?

A

Stripping out volatile items such as food and fuel

42
Q

What is headline inflation influenced by?

A

Short term factors

43
Q

What is underlying inflation?

A

Measured by trying to get rid of inflationary noise created by price fluctuations

Similar to core inflation

44
Q

How do u calculate the rate of increase of real gdp

A

Rate or increase of nominal gdp-rate of price inflation

45
Q

What is a balance of payments?

A

Record of all the currency flows into and out of a county in a particular period

46
Q

Current account def

A

Measures all the currency flows into and out of a country in a time period in payment for exports and imports of goods and services, together with income flows (previously known as income flows and transfers)

47
Q

What are exports?

A

Domestically produced goods or services sold to residents in other nations

48
Q

What are imports?

A

Good or services produced in other countries that are sold to residents of this country

49
Q

Balance of trade?

A

Difference between Monet value of a country’s imports and its exports

Largest component of a countries balance of payments on current account

50
Q

Balance of trade deficit?

A

When the money of a countries imports > value of exports

51
Q

Balance of trade surplus?

A

Value of exports > value of imports

52
Q

What makes up the current account

A

Exports and imports

53
Q

What is a satisfactory balance of payments?

A

Situation where current account is in equilibrium or a small surplus or sustainable deficit

54
Q

What is balancing the budget?

A

When government spending=gov rev

G=T

55
Q

What is budget deficit?

A

When gov spending > tax rev

Represents a net injection of demand into circular flow of income and hence is expansionary

56
Q

What is policy conflict?

A

When two policy objectives cannot be achieved

The better performing in one objective, the worse in the other

57
Q

Trade-off between policy objectives?

A

Although it may be impossible to achieve two desirable objectives at the same time policy-makers can accept a combination between the two extremes

(Inflation and unemployment-Philips curve)

58
Q

When does a trade off occur?

A

When two events are mutually exclusive

59
Q

What are the main policy trade offs?

A

Full employment and economic growth-satisfactory balance of payments and exchange rates

Full employment and economic growth-control of inflation

Economic growth-greater income inequality

Current living standards-future living standards

60
Q

What are Keynesian economists?

A

Followers of John Maynard Keynes govs should mange the economy particularly through use of fiscal policy

61
Q

Who are pro free market economists?

A

Dislike gov intervention in the economy and prefer free markets

62
Q

What is monetary policy?

A

The use by the gov and it’s agent the Bank of England of interest rates and other monetary instruments to try and achieve the governments policy objectives

63
Q

What is fiscal policy?

A

The use by the government spending and taxation to try and achieve the gov policy objectives

64
Q

What is the balance of payments equilibrium?

A

Where a deficit or surplus on the current account of the balance payments is exactly matched by capital inflows or outflows in the other parts of the bank me of payments

65
Q

When is the Keynesian era

A

1945-1979

A Level Economics: Macroeconomics (25 decks)

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